Exclusive: US regulators scrutinize Alibaba, other Chinese companies’ audit sources

HONG KONG (Reuters) – US regulators have chosen e-commerce giant Alibaba Group Holding Ltd. (9988.HK) And other Chinese companies listed in the United States to conduct audit inspections starting next month, three sources familiar with the matter said.

The move follows Friday’s landmark audit agreement between Beijing and Washington that allowed US regulators to scrutinize accounting firms in mainland China and Hong Kong, potentially ending a long-running dispute that has threatened to expel more than 200 Chinese firms from US exchanges. Read more

The sources told Reuters that Alibaba received a notification that it is among the first batch of Chinese companies whose accounts will be subject to audits by the US regulator – the Public Company Accountability Oversight Board (PCAOB) – in Hong Kong.

The sources, who asked not to be identified due to confidentiality restrictions, said PricewaterhouseCoopers, the accounting firm of China’s largest e-commerce company, was also told to inspect the audit work.

Alibaba did not respond to a request for comment while a spokesperson for PricewaterhouseCoopers said it was the company’s policy not to comment on any customer-related matters.

A PCAOB spokesperson said the board did not comment on the inspections. The China Securities Regulatory Commission (CSRC) did not immediately respond to a request for comment.

US-listed Alibaba shares closed down about 3% on Tuesday after the Reuters report, after rising about 1% in pre-market trading. Its Hong Kong shares fell more than 3% in Wednesday morning trading while the city’s tech giants were listed (.HSTECH) It fell nearly 2%.

US regulators have demanded for more than a decade access to audit papers of US-listed Chinese companies, but Beijing has been reluctant to allow US regulators to inspect accounting firms, citing national security concerns.

Alibaba, which went public in New York in 2014 in what was at the time the largest listing in history, is the most valuable Chinese company listed in the United States with a market capitalization of $248 billion as of Tuesday.

There is no special treatment

The PCAOB said on Friday that the agency had notified the selected companies, without naming them, and that their officials were expected to land in Hong Kong, where the inspections will take place, by mid-September.

The regulator, which oversees audits of US listed companies, will select companies based on risk factors, such as size and sector, and that no company can expect special treatment, according to the PCAOB. Read more

Reuters was not immediately able to say how many other Chinese companies took part in the first batch of US inspections and which other Chinese companies.

Founded in 1999, Alibaba considers e-commerce a major business and has expanded into fast-growing sectors such as cloud services and the Internet of Things in recent years. It also owns AutoNavi Holdings Ltd, a large Chinese digital mapping and navigation company.

In July, it was added to the US Securities and Exchange Commission (SEC) list of Chinese companies that may be delisted for failing to comply with audit requirements. Read more

The list now includes more than 160 Chinese companies including fellow e-commerce group JD.com Inc (9618.HK) and electric vehicle maker Nio Inc.

Current US rules state that Chinese companies that do not comply with requests for audit working papers will be suspended from trading in the US in early 2024.

Days before it was added to its delisting watch list, Alibaba said it plans to add a preliminary listing in Hong Kong to its New York presence, targeting investors in mainland China. Read more

The tech giant, which has already been on the Hong Kong Stock Exchange with a secondary listing since 2019, said it expects to complete the initial listing by the end of 2022.

Covering by Julie Zhou in Hong Kong; Additional reporting by Katanga Johnson in Washington. Editing by Sumit Chatterjee and Christopher Cushing

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